Japanese Yen bears retain control despite subdued USD demand, intervention fears

  • The Japanese Yen drifts lower on Friday and moves away from over a two-week high.
  • The BoJ policy uncertainty and the risk-on environment undermine the safe-haven JPY.
  • Hawkish Fed expectations underpin the USD and remain supportive of the momentum.

The Japanese Yen (JPY) strengthened sharply against its American counterpart on Thursday and shot to over a two-week top in reaction to the Bank of Japan (BoJ) board member Hajime Takata's hawkish remarks.  Takata dropped the clearest hint of a looming rate hike, though the initial euphoric market reaction faded rather quickly after BoJ Governor Kazuo Ueda said that the 2% inflation target is not already in sight. Furthermore, a recession in Japan is expected to force the BoJ to delay its plans to tighten monetary policy. This, along with the risk-on environment, prompts fresh selling around the safe-haven JPY and assists the USD/JPY pair to attract some buyers near the 149.20 region. 

Meanwhile, signs of easing inflation in the US support expectations of rate cuts by the Federal Reserve (Fed) later this year. That said, investors seem convinced that the US central bank will wait until the June policy meeting before lowering borrowing costs. The hawkish outlook remains supportive of elevated US Treasury bond yields, which acts as a tailwind for the US Dollar (USD) and lifts the USD/JPY pair closer to mid-150.00s on Friday. That said, speculations that Japanese authorities will intervene to stem any further JPY weakness, could cap the upside. 

Traders now look to the US macro data – ISM Manufacturing PMI and the revised Michigan Consumer Sentiment Index – for some impetus later during the North American session. Apart from this, speeches by influential FOMC members and the US bond yields will play a key role in driving the USD demand. Apart from this, the broader risk sentiment should contribute to producing short-term trading opportunities around the USD/JPY pair on the last day of the week. 

Daily digest market movers: Japanese Yen seems vulnerable amid divergent BoJ-Fed policy expectations

  • The Bank of Japan board member Hajime Takata said that the central bank must consider an exit from its ultra-loose policy as the achievement of the 2% inflation target is becoming within sight and boosted the Japanese Yen on Thursday.
  • In contrast, the BoJ Governor Kazuo Ueda said that it was too early to conclude that inflation was close to sustainably meeting the central bank's 2% target and stressed the need to confirm whether a positive wage-inflation cycle would kick off.
  • A private-sector survey showed this Friday that Japan's factory activity shrank at the fastest pace in over three-and-a-half years in February, with the final au Jibun Bank Japan Manufacturing PMI shrinking to 47.2 from 48.0 in January.
  • The data suggested that weakening demand has worsened the economic outlook and comes on top of an unexpected economic contraction during the fourth quarter, which could delay the BoJ's plans to tighten its policy in the coming months.
  • The US Dollar attracted fresh buying after an initial dip that followed the release of the US inflation data and registered its second straight monthly gain, assisting the USD/JPY pair to stage a goodish bounce from over a two-week trough.
  • The Core US PCE Price Index – the Federal Reserve's preferred inflation gauge that excludes food and energy – climbed 0.4% in January and the yearly rate eased to 2.4% from 2.6%, matching estimates and reaffirming June rate cut bets.
  • Separately, the US Department of Labor reported that the number of American citizens applying for unemployment insurance benefits for the first time increased more than expected, by 13K to 215K in the week ending February 24.
  • Atlanta Fed President Raphael Bostic said that it would probably be appropriate to reduce the policy rate in the summertime and that the last few inflation readings had shown that it is going to be a bumpy path back toward the 2% target.
  • San Francisco Fed President Mary C. Daly noted that the US central bank shouldn't hasten to reduce interest rates as the economy remains firm and sees little risk of faltering, though is ready to do so when the macro data demands it.
  • Cleveland Fed President Loretta J. Mester said that inflation remains a challenge that the US central bank needs to overcome, but rate cuts should resume later this year as long as the incoming economic data gives enough room to operate.
  • New York Fed President, John Williams, acknowledged that the resilience of the US economy is remarkable and expects the US central bank to cut interest rates later this year, but doesn't see the sense of urgency for immediate action.
  • Traders now look to the US economic docket, featuring the release of the ISM Manufacturing PMI and the revised Michigan Consumer Sentiment Index, which, along with Fed speak, should influence the USD and provide some impetus.

Technical analysis: USD/JPY recovers further from near two-week low, seems poised to appreciate further

From a technical perspective, any subsequent move up is likely to confront stiff resistance near the 150.65-150.70 region. This is closely followed by a multi-month peak, around the 150.90 zone touched on February 13, which if cleared decisively will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in the positive territory, the USD/JPY pair might then climb to the 151.45 hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the 150.00 psychological mark now seems to protect the immediate downside, below which spot prices could slide back towards the overnight swing low, around the 149.20 area. Some follow-through selling, leading to a subsequent break below the 149.00 mark, might shift the bias in favour of bearish traders and make the USD/JPY pair vulnerable.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.

USD   -0.16% -0.08% -0.05% -0.13% 0.17% -0.16% -0.04%
EUR 0.16%   0.08% 0.09% 0.03% 0.34% 0.00% 0.12%
GBP 0.09% -0.07%   0.02% -0.04% 0.27% -0.07% 0.05%
CAD 0.05% -0.09% -0.01%   -0.06% 0.25% -0.09% 0.02%
AUD 0.13% -0.03% 0.05% 0.06%   0.31% -0.04% 0.08%
JPY -0.17% -0.33% -0.25% -0.24% -0.29%   -0.34% -0.21%
NZD 0.16% 0.00% 0.09% 0.10% 0.03% 0.33%   0.12%
CHF 0.04% -0.12% -0.03% -0.02% -0.08% 0.23% -0.12%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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